PUNJAB STATE CO-OPERATIVE MILK PRODUCER FEDERATION LTD. v. INCOME TAX OFFICER
[Citation -2006-LL-0427-5]

Citation 2006-LL-0427-5
Appellant Name PUNJAB STATE CO-OPERATIVE MILK PRODUCER FEDERATION LTD.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 27/04/2006
Assessment Year 2002-03
Judgment View Judgment
Keyword Tags marketing of agricultural produce • profits and gains of business • agricultural implements • computation of income • proportionate amount • quantum of deduction • co-operative society • gross total income • co-operative bank • money on interest • domestic company • interest earned • interest income • monies borrowed • interest paid • letting out • nil income
Bot Summary: The computation of nil income was arrived at by the assessee as under : Business loss Income from other 4,47,67,417 sources : Interest from 53,28,465 commercial banks Interest from co- 7,95,37,491 operatives Income from sale of 13,07,161 seeds Capital grant written 84,58,496 off 9,46,31,613 Gross total income 4,98,64,196 Less deduction under 4,98,64,196 s. 80P(2)(d) Balance taxable Nil Nil income As per the note given on the computation of income chart, it was claimed b y the assessee that the interest income earned from co-operative societies amounting to Rs. 7,95,37,490 was eligible for deduction under s. 80P(2)(d) but the claim was restricted to the net income determined above at Rs. 4,98,64,196. To mean total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or s. 280-O. Income by way of dividends from a domestic company included in the gross total income would obviously be income computed in accordance with the provisions of the Act, that is, after deducting interest on monies borrowed for earning such income. The words such income by way of dividends must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. If one has to consider the component of interest included in the course of total income, the expenses incurred by the assessee for earning such income are bound to be taken into account in working out the net total income including the gross total income. On appeal to the Supreme Court, the Hon ble Supreme Court held as under : Affirming the decision of the High Court, that since s. 66 required the computation of the total income by including all income on which no income-tax was payable under Chapter VII, the income on which no income-tax was payable b y a co-operative society under s. 81(i)(d) falling in Chapter VII had to be necessarily included in its total income. Total income is defined under s. 2(45) of the IT Act as under : total income means the total amount of income referred to in s. 5, computed in the manner laid down in this Act; In order to consider what is the total income of the assessee, effect has got to be given to all the provisions of the Act including the deductions permissible under Chapter VI-A. It may be pertinent to mention that the first step for computation of total income is to determine the income under various heads of income as specified under s. 14 of the Act. Since deduction under s. 80P(2)(d) is allowed to the assessee out of the gross total income, the income described in s. 80P(2)(d) no longer is included in the total income notwithstanding the fact that the said income is included in the gross total income.


M.A. BAKSHI, VICE PRESIDENT: ORDER Appeal of assessee for asst. yr. 2002-03 is directed against order dt. 31st Oct., 2005 of CIT(A), Chandigarh. We have heard parties and perused records. 2. relevant facts briefly stated are that assessee is co-operative society primarily engaged in procurement, processing and marketing of milk and milk products. assessee had filed return of income on 29th Oct., 2002 for assessment year under appeal declaring nil income. said return had been processed under s. 143(3) accepting returned income. computation of nil income was arrived at by assessee as under : "Business loss (-) Income from other 4,47,67,417 sources : Interest from 53,28,465 commercial banks Interest from co- 7,95,37,491 operatives Income from sale of 13,07,161 seeds Capital grant written 84,58,496 off 9,46,31,613 Gross total income 4,98,64,196 Less deduction under 4,98,64,196 s. 80P(2)(d) Balance taxable Nil" Nil" income As per note given on computation of income chart, it was claimed b y assessee that interest income earned from co-operative societies amounting to Rs. 7,95,37,490 was eligible for deduction under s. 80P(2)(d) but claim was restricted to net income determined above at Rs. 4,98,64,196. On scrutiny of accounts, AO was of view that interest earned by assessee from co-operative societies was not on account of investment by way of debentures/securities or shares in another co-operative society but was business receipt arising out of business transactions of advancing funds for day- to-day running of business activities of District Milk Unions. AO accordingly held that assessee was not entitled to deduction under s. 80P(2)(d). 3. AO further proceeded to hold that even if assessee is presumed to be entitled to deduction under s. 80P(2)(d), same is permissible on income to be determined after deduction of expenses as provided under s. 14A of IT Act, 1961. According to AO, financial expenses incurred by assessee at Rs. 5,00,27,855 were directly attributable to earning of interest income of Rs. 7,95,37,490. AO accordingly made assessment at income of Rs. 4,98,64,200 after denying deduction under s. 80p(2)(d) to assessee. 4 . assessee appealed to CIT(A) but did not succeed. Hence this appeal. 5 . learned counsel for assessee contended that assessee had provided financial assistance by way of loans to co-operative societies in course of carrying on business activities. interest earned on such investments qualified for deduction under s. 80P(2)(d). Reliance was placed on decision of Punjab and Haryana High Court in case of CIT vs. Haryana Co-op. Sugar Mills Ltd. (1989) 180 ITR 631 (P&H), wherein Hon ble High Court held that saving bank account and call deposit bank account are investments for purpose of s. 80P(2)(d). Reliance was also placed on decision of Supreme Court in case of CIT vs. U.P. Co-operative Federation Ltd. (1989) 76 CTR (SC) 22 : (1989) 176 ITR 435 (SC) to support contention that even amounts advanced to members of co-operative societies for lifting and distribution of sugar are investments and interest derived therefrom is entitled to deduction under provisions of s. 14(3)(1)(iii) of Indian IT Act, 1922. learned counsel for assessee further relied upon decision of Punjab and Haryana High Court in case of CIT vs. Doaba Co-operative Sugar Mills Ltd. (1998) 144 CTR (P&H) 147 : (1998) 230 ITR 774 (P&H), where Hon ble High Court has held that deduction under s. 80P(2)(d) was permissible on interest received from co-operative societies without deducting interest paid to such societies or to bank. 6 . learned counsel further contended that s. 14A inserted with retrospective effect is inapplicable in present case insofar as said section is applicable in respect of income which is exempt from taxation. According to counsel, in present case, assessee is not claiming exemption in respect of any income. Deduction under s. 80P(2)(d) is claimed by assessee out of income included in gross total income. Reliance was placed on decision of Supreme Court in case of Rajasthan State Warehousing Corpn. vs. CIT (2000) 159 CTR (SC) 132 : (2000) 242 ITR 450 (SC), in which their Lordships have held that where part of income is exempt and if business of assessee is one and indivisible, expenditure cannot be apportioned and part relating to income which is exempt cannot be disallowed. It was accordingly pleaded that deduction may be allowed under s. 80P(2)(d) to assessee in respect of gross receipts of interest. 7 . learned Departmental Representative, on other hand, contended that assessee is not entitled to deduction under s. 80P(2)(d) insofar as deduction is permissible under said section in respect of any income by way of interest or dividends derived by co-operative society from its investments with any other co-operative society. According to learned Departmental Representative, assessee had provided advances to co- operative societies in normal course of business and no investment was made in such societies income wherefrom would qualify for deduction under s. 80P(2)(d). learned Departmental Representative further contended that s. 14A having been inserted with retrospective effect, decision of Hon ble Supreme Court in case of Rajasthan State Warehousing Corpn. vs. CIT Supreme Court in case of Rajasthan State Warehousing Corpn. vs. CIT (supra) stands superseded. learned Departmental Representative further contended that s. 14A is applicable in such cases where part of income is not included in total income. According to learned Departmental Representative, s. 14A does not speak of income which is exempt from taxation. On other hand, it speaks of income which is not included in total income. According to him, total income is defined under s. 2(45) of Act and there is distinction between gross total income and total income. According to learned Departmental Representative, gross total income is defined under s. 80B of Act to mean income as computed in accordance with provisions of Act before making any deductions under Chapter VI-A. On other hand, total income means total amount of income referred to in s. 5 computed in manner laid down in Act. According to learned Departmental Representative, since deduction under s. 80P is made out of gross total income, quantum of deduction is not included in total income as defined under s. 2(45). Therefore, provisions of s. 14A are clearly attracted in this case. It was accordingly pleaded that order of AO may be upheld and in alternative, deduction permissible to assessee may be held to be on net interest after deducting proportionate expenses. learned Departmental Representative also invited our attention to return of income to support his contention with particular reference to Sl. Nos. 18, 19 and 20 of return of income. Reliance was also placed on decision of Kolkata Bench of Tribunal in case of Dy. CIT vs. S.G. Investments & Industries Ltd. (2004) 84 TTJ (Kol) 143 : (2004) 89 ITD 44 (Kol), to support contention that deduction was permissible to assessee after deducting proportionate expenses. Reliance was also placed on decision of Supreme Court in case of Sabarkantha Zilla Kharid Vechan vs. CIT (1993) 114 CTR (SC) 459 : (1993) 203 ITR 1027 (SC), in support of contention. Reliance was also placed on following decisions : (i) Hamendra Singh vs. CIT (1988) 69 CTR (Raj) 205 : (1988) 170 ITR 508 (Raj) (ii) Addl. CIT vs. Madras Fertilisers Ltd. (1980) 122 ITR 139 (Mad) (iii) Karnataka Forest Plantations Corpn. Ltd. vs. CIT (1986) 53 CTR (Kar) 308 : (1985) 156 ITR 275 (Kar) (iv) Saharanpur Light Railway Co. Ltd. vs. CIT (1994) 208 ITR 882 (Cal) (v) Rajasthan State Warehousing Corpn. vs. CIT (2000) 159 CTR (SC) 132 : (2000) 242 ITR 450 (SC). 8 . In counter-reply, learned counsel for assessee relied upon following decisions in support of contention that proportionate expenses are not to be deducted in computing deduction permissible under Chapter VI-A: (i) ITA No. 17/Chd/2003, asst. yr. 1992-93, ITO vs. Punjab State Federation of Co-op. Sugar Mills and ITA No. 30/Chd/2003, asst. yr. 1992-93, Punjab State Federation of Co-op. Sugar Mills vs. ITO. (ii) ITA No. 79/Chd/2004, asst. yr. 2000-01, Punjab State Co-operative Supply & Marketing Federation Ltd. vs. Asstt. CIT. It was accordingly pleaded that appeal of assessee may be dismissed. 9. We have given our careful consideration to rival contentions. There are two issues involved in this appeal : first issue is as to whether assessee is entitled to deduction under s. 80P(2)(d) in respect of interest on advances to co-operative societies in course of its business and second issue is in regard to quantum of such deduction. So far as first issue is concerned, same is covered in favour of assessee by decision of Hon ble Supreme Court in case of CIT vs. UP Co-operative Federation Ltd. (supra). In said case, their Lordships of Supreme Court held that amounts advanced to members of co-operative societies for lifting and distribution of sugar are investments and interest derived therefrom is entitled to deduction under provisions of s. 14(3)(1)(iii) of Indian IT Act, 1922. Admittedly, decision of Hon ble Supreme Court is with reference to s. 14(3)(1)(iii) of 1922 Act. It is, therefore, necessary to consider as to whether said decision also applies with reference to provisions of s. 80P(2)(d). In our considered view, it would be necessary to compare relevant provisions of Act under IT Act, 1922. 10. Sec. 14(3) of Indian IT Act, 1922 provided that tax shall not be payable by co-operative society in certain situations. Clause (i) of s. 14(3) refers to specific classes of co-operative societies in whose cases there is no exemption. Clause (ii) exempts income in respect of profits and gains of business of co-operative societies not covered by cl. (i) upto Rs. 15,000. Clause (iii) exempts interest and dividends and income derived from investments with any other co-operative society. Clause (iv) exempts income derived from letting out of godowns or warehouses for storage, processing or facilitating marketing of commodities. Clause (v) exempts interest from securities chargeable under s. 8 or any income from property chargeable under s. 9 of Act, where total income of co-operative society of specific types mentioned therein does not exceed Rs. 20,000. 11. Sec. 80P(2)(d) of IT Act, 1961 provides deduction in respect of any income by way of interest or dividends derived by co-operative society from its investments with any other co-operative society to extent of whole of such income. It is, therefore, evident that cl. (iii) of s. 14(3) of 1922 Act is pari materia with cl. (d) of s. 80P. Therefore, decision of Hon ble Supreme Court in case of CIT vs. UP Co-operative Federation Ltd. (supra), in our view, is applicable to s. 80P(2)(d) on all-fours. In said decision, their Lordships of Supreme Court explaining meaning of word "investments" as per s. 14(3)(iii), held as under : " Investment has not been defined in Act. P. Ramanatha Aiyar s Law Lexicon (Reprint Edn. 1987) states : term invest is used in sense broad enough to cover loaning of money but is not restricted to that mode of investment or loans made on commercial paper. word invest has been judicially defined follows : To place property in business; to place so that it will be safe and yield profit. It is also commonly understood as giving money for some other property (as) investing funds on lands and houses. Investment means, in common parlance, putting out money on interest, either by way of loan, or by purchase of income producing property..." It is thus evident that on basis of decision of Hon ble Supreme Court, advances made by assessee to member co-operative societies for purpose of procurement of milk etc. in course of its business fa lls within category of investments and interest thereon accordingly qualifies for deduction under s. 80P(2)(d). We may also usefully refer to decision of Punjab and Haryana High Court in case of CIT vs. Haryana Co-operative Sugar Mills Ltd. (supra). In this case it was held by Hon ble High Court that amount deposited by one co-operative society with another, whether for long term or short term would be investment within meaning of s. 80P(2)(d). We are, therefore, of considered view that interest earned by assessee on advances given to member co-operative societies for procurement of milk qualifies for deduction under s. 80P(2)(d) of IT Act, 1961. We hold accordingly. 12. Now we proceed to consider second issue involved in this appeal i.e. relating to quantum of deduction under s. 80P(2)(d) of Act. precise issue involved in this appeal is as to whether deduction is to be computed with reference to gross interest received from member co- operative societies or net interest as included in gross total income of assessee. It is not disputed that money has been advanced to member co-operative societies in course of business of assessee. learned counsel for assessee insisted before us that issue was covered in favour of assessee by decision of Punjab and Haryana High Court in CIT vs. Janta Co-operative Sugar Mills Ltd., IT Ref. No. 29 of 1984, dt. 23rd Feb., 1998 and in case of CIT vs. Doaba Sugar Mills Ltd. (supra). On perusal of decisions relied upon by learned counsel for assessee, we are of view that aforementioned decisions are not relating to issue involved in this appeal. issue before Hon ble High Court was whether interest received by co-operative society on any investment in another co-operative society qualifies for deduction and such investment need not necessarily be surplus funds. Another issue involved before Hon ble High Court in case of Doaba Co-operative Sugar Mills Ltd. (supra) was as to whether interest paid by assessee to bank was to be adjusted against interest received for by assessee to bank was to be adjusted against interest received for purpose of allowing deduction. issue before Hon ble High Court in case of CIT vs. Janta Co-operative Sugar Mills Ltd. (supra) was whether on facts and in circumstances of case, Tribunal is right in law in upholding CIT(A) s order allowing deduction under s. 80P(2)(d) of IT Act, 1961 in respect of interest of Rs. 1,40,203 from Jalandhar Central Co-operative Bank without setting off interest of Rs. 6,72,776 paid to same bank. 13. issue involved in present appeal is as to whether deduction under s. 80P(2)(d) of IT Act, 1961 is permissible to assessee in respect of gross interest received from member co-operative societies or net interest computed in accordance with provisions of Act. This issue was neither raised nor decided by Hon ble High Court. We will therefore consider this issue in light of provisions of Act. 1 4 . It will be pertinent to mention that deduction claimed by assessee under s. 80P(2)(d) falls under Chapter VI-A of IT Act, 1961 dealing with deductions to be made in computing total income. Sec. 80P(2)(d) reads as under : "80P. (1) Where, in case of assessee being co-operative society, gross total income includes any income referred to in sub-s. (2), there shall be deducted, in accordance with and subject to provisions of this section, sums specified in sub-s. (2), in computing total income of assessee. (2) sums referred to in sub-s. (1) shall be following, namely : ... ... ... ... (d) in respect of any income by way of interest or dividends derived by co-operative society from its investments with any other co-operative society, whole of such income;" Secs. 80A and 80B read as under : "80A. (1) In computing total income of assessee, there shall be allowed from his gross total income, in accordance with and subject to provisions of this chapter, deductions specified in ss. 80C to 80U. (2) aggregate amount of deductions under this chapter shall not, in any case, exceed gross total income of assessee. (3) Where, in computing total income of AOP or BOI, any deduction is admissible under s. 80G or s. 80GGA or s. 80GGC or s. 80HH or s. 80HHA or s. 80HHB or s. 80HHC or s. 80HHD or s. 80-I or s. 80-IA or s. 80-IB or s. 80J or s. 80JJ, no deduction under same section shall be made in computing total income of member of AOP or BOI in relation to share of such member in income of AOP or BOI. (4)............. 80B. In this chapter (1) to (4) ............. (5) "gross total income" means total income computed in accordance with provisions of this Act, before making any deduction under this chapter." ............." combined reading of aforesaid provisions of Act clearly indicates that deductions under any of provisions contained in Chapter VI-A are permissible with reference to amount of income of that nature as computed i n accordance with provisions of Act. Their Lordships of Supreme Court in case of Distributors (Baroda) (P) Ltd. vs. Union of India & Anr. (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC), also laid down following principle of law in respect of deductions permissible under Chapter VI-A : "The opening words of s. 80M, viz., Where gross total income of assessee.. includes any income by way of dividends from domestic company describe condition which must be fulfilled in order to attract applicability of provision contained in s. 80M. condition is that gross total income of assessee must include income by way of dividends from domestic company. Gross total income is defined in s. 80B, cl. (v), to mean total income computed in accordance with provisions of Act before making any deduction under Chapter VI-A or s. 280-O . Income by way of dividends from domestic company included in gross total income would, therefore, obviously be income computed in accordance with provisions of Act, that is, after deducting interest on monies borrowed for earning such income. If income by way of dividends from domestic company computed in accordance with provisions of Act is included in gross total income, or in other words, forms part of gross total income, condition specified in opening part of sub-s. (1) of s. 80M would be fulfilled and provision enacted in that sub- section would be attracted. What is included in gross total income in such case is particular quantum of income belonging to specified category. Therefore, words such income by way of dividends must be referable not only to category of income included in gross total income but also to quantum of income so included. It is obvious, as matter of plain grammar, that words such income by way of dividends must have reference to income by way of dividends mentioned earlier and that would be income by way of dividends from domestic company which is included in gross total income. That would obviously be income by way of dividends computed in accordance with provisions of Act." It is, therefore, well settled principle of law that deduction under Chapter VI- is permissible with reference to net income computed in accordance with provisions of Act as included in gross total income which is permissible as deduction under respective provisions of Act. 15. It is, therefore, necessary to find out as to what is component of income by way of interest received from member societies which is included in gross total income. It is admitted position before us that assessee has earned interest from member co-operative societies in course of business. It is evident from facts on record that assessee has incurred expenses in course of earning business income which includes receipts by way of interest from member co-operative society. Therefore, if one has to consider component of interest included in course of total income, expenses incurred by assessee for earning such income are bound to be taken into account in working out net total income including gross total income. Tribunal, Chandigarh Bench in case of ITO vs. Punjab State income. Tribunal, Chandigarh Bench in case of ITO vs. Punjab State Federation of Co-operative Sugar Mills (supra) and Punjab State Co-operative Supply & Marketing Federation Ltd. vs. Asstt. CIT (supra), has held that deduction under s. 80P has got to be computed with reference to net income after deducting expenses and in event of expenses being indivisible, same has got to be deducted on proportionate basis. Reference may also be usefully made to decision of Hon ble Supreme Court in case of Sabarkantha Zilla Kharid Vechan vs. CIT (supra). In said case, assessee, co-operative society, was engaged in business of purchase of agricultural implements, seeds, livestock and other articles, intended for supply to members as well as to non-members. For asst. yrs. 1964-65, 1965-66 and 1966-67, assessee claimed exemption from income-tax under s. 80(i)(d) of IT Act, 1961 on gross profits and gains of business with its members. But ITO granted relief only on net amount as was includible in computation of total income under s. 110, since income exempted under s. 81(i)(d) was to be included in its total income as required by s. 66. For first two years, Tribunal accepted claim of assessee but for third year Tribunal rejected claim and upheld ITO order. On reference, High Court held, rejecting claim of assessee, that only way of working out scheme of provisions of s. 81(i)(d) in light of ss. 66 and 110 was first to calculate total income and income-tax thereon and secondly to ascertain net profits in respect of activities on which income-tax was not payable by setting off against gross profits proportionate amount of expenditure and then to determine profits and gains from taxable activities and thereafter from income-tax on total income grant rebate at average rate of income-tax on amount on which no tax was payable. On appeal to Supreme Court, Hon ble Supreme Court held as under : "(i) Affirming decision of High Court, that since s. 66 required computation of total income by including all income on which no income-tax was payable under Chapter VII, income on which no income-tax was payable b y co-operative society under s. 81(i)(d) falling in Chapter VII had to be necessarily included in its total income. Sec. 110 was then attracted. Hence, when income of co-operative society on which no tax was payable was included in its total income, it became entitled to deduction from amount of income-tax chargeable on its total income. That meant that co-operative society became entitled to deduction or exemption of income-tax payable by it only on net amount of profits and gains, i.e. on income of its business otherwise computable in accordance with provisions of IT Act, 1961, for purpose of charging income-tax thereon and which was included in its total income, and not on amount of its gross profits and gains of business on which no income-tax was payable." At p. 1031 of report, their Lordships have reproduced s. 81 and held as under : "81. Income of co-operative societies Income-tax shall not be payable by co-operative society (i) in respect of profits and gains of business carried on by it, if it is .. (d) society engaged in purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for purpose of supplying them to its members." "The said provision, as seen therefrom, undoubtedly exempts assessee co-operative society, which carries on business envisaged therein, from payment of income-tax on profits and gains of such business. But controversy which relates to said provision is, whether income-tax not payable thereunder, falls to be calculated either with reference to full amount o f profits and gains of co-operative society s business, as contended on behalf of assessee or with reference to net amount of profits and gains of co-operative society s business, as otherwise computable under provisions of IT Act for purpose of charging income-tax thereon, as contended on behalf of Revenue. If relevant provisions of IT Act providing for charging person including co-operative society with income-tax on profit and gains of such person s business show that it is net profits and gains, i.e., income of such business computed in accordance with provisions of IT Act, it must flow therefrom, as necessary corollary thereof, that profits and gains for which exemption from income-tax is envisaged under s. 81(i)(d) of IT Act, ought to be net profits gains i.e. income of business computed in accordance with provisions of IT Act which is includible in such person s total income for charging income-tax thereon. This situation requires us to advert to such of relevant provisions of IT Act, which could be of assistance to us in resolving controversy." Hon ble Supreme Court has referred to various provisions of Act relevant to computation of income from profits and gains of business. At p. 1033, their Lordships further held as under : "Thus, said provisions of IT Act, in our view, clearly envisage legislative scheme of giving income-tax exemption to co-operative society carrying on its business contemplated in s. 81(i)(d) of IT Act, not with respect to amount of gross profits and gains of its business but only with respect to amount of net profits and gains i.e. income of its business otherwise computable according to provisions of IT Act for purpose of charging income-tax as part of total income of assessee, as required under s. 110 of IT Act." At p. 1034, their Lordships of Supreme Court referred to decision of Andhra Pradesh High Court in case of CIT vs. Anakapalli Co-operative Marketing Society (1989) 175 ITR 584 (AP), which relates to s. 80P, and held as under : "In CIT vs. Anakapalli Co-operative Marketing Society (1989) 175 ITR 584 (AP), question referred for decision of Andhra Pradesh High Court under s. 256(1) of IT Act was (at p. 585) : Whether, on facts and in circumstances of case, Tribunal was justified in holding that entire amount of Rs. 3,72,038 relating to marketing of agricultural produce of its members and interest on loans given to its members should be allowed as deduction under s. 80P(2)(a) of IT Act, and not Rs. 73,720 with reference to proportionate net profit referable to those activities only? Sec. 80P, which provided for exemption to co-operative society from payment of income-tax, was incorporated in IT Act w.e.f. 1st April, 1968, by deletion of s. 81, with which we have dealt." Their Lordships at p. 1035 further held : "Jeevan Reddy, J. (one of us), who spoke then for Division Bench of that High Court, answered aforesaid question in negative, taking view that what was deductible under sub-s. (1) of s. 80P was only that portion of said amount as can be called total income attributable to activities defined in cl. (5) of s. 80B. Sec. 10AB introduced in IT Act by Finance (No. 2) Act, 1980, w.e.f. 1st April, 1981, was adverted to by his Lordship to buttress view so taken, in that it read (at p. 588 of 175 ITR) : xx xx xx "Hence, view taken by Andhra Pradesh High Court on scope of s . 80P of IT Act which had replaced s. 81 of IT Act, fully supports view we have already expressed on income exemption of profits and gains of business of co-operative society as envisaged under s. 81 of IT Act read in conjunction with ss. 66 and 110 thereof." It is, therefore, evident that issue relating to deduction under s. 80P is also covered by aforementioned decision of Hon ble Supreme Court. We respectfully applying above principle of law hold that deduction under s. 80P(2)(d) is permissible to assessee on net component of interest computed in accordance with provisions of Act. 16. It is also pertinent to mention that s. 14A has been incorporated in IT Act, 1961 by Finance Act, 2001 with retrospective effect from 1st April, 1972. said section reads as under : "14A. For purposes of computing total income under this chapter, no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income which does not form part of total income under this Act : Provided that nothing contained in this section shall empower AO either to reassess under s. 147 or pass order enhancing assessment or reducing refund already made or otherwise increasing liability of assessee under s. 154, for any assessment year beginning on or before 1st day of April, 2001." question that assumes importance in light of contentions advanced on behalf of parties is as to whether s. 14A is applicable only in respect of income which is not included in total income by virtue of provisions of s. 10 and is inapplicable in respect of deductions provided under Chapter VI- . In order to consider this issue, it would be necessary to keep in mind language of s. 14A. plain reading of s. 14A reveals that any expenditure which is related to income which does not form part of total income under Act will not be allowed as deduction. Total income is defined under s. 2(45) of IT Act as under : "(45) total income means total amount of income referred to in s. 5, computed in manner laid down in this Act;" In order to consider what is total income of assessee, effect has got to be given to all provisions of Act including deductions permissible under Chapter VI-A. It may be pertinent to mention that first step for computation of total income is to determine income under various heads of income as specified under s. 14 of Act. After working out gross total income, deductions as permissible under Chapter VI are to be made which gives total income. There is distinction between gross total income and total income. Gross total income is defined under s. 80B as under : "80B(5) gross total income means total income computed in accordance with provisions of this Act, before making any deduction under this chapter. (i.e. Chapter VI-A)." In other words, gross total income is income as computed under provisions of Act before deductions under Chapter VI-A. legislature has consciously used words total income in contrast to gross total income in s. 14A. Therefore, for purpose of attracting provisions of s. 14A, one will have to consider as to whether income specified under s. 80P(2)(d) is included in "total income" or not. Admittedly, income referred to in s. 80P(2)(d) is included in gross total income but once said income is excluded by virtue of s. 80P(2)(d) it no longer can be said to be included in total income. Since deduction under s. 80P(2)(d) is allowed to assessee out of gross total income, income described in s. 80P(2)(d) no longer is included in total income notwithstanding fact that said income is included in gross total income. We accordingly hold that s. 14A is applicable even in respect of incomes which are excluded from total income by virtue of deductions under Chapter VI-A. This view gets further support from prescribed form of return of income. Sl. No. 18 provides for gross total income, Sl. No. 19 provides for deductions under Chapter VI-A and Sl. No. 20 provides for total income. It is therefore, evident that total income as per return does not include income referred to in s. 80P(2)(d). Therefore, provisions of s. 14A inserted w.e.f. 1st April, 1962 are clearly attracted in this case. We are, therefore, of considered view that deductions permissible to assessee under s. 80P(2)(d) is in respect of net income after excluding expenses attributable to income referred to in s. 80P(2)(d). In case some expenditure is indivisible, vis-a-vis other receipts of business, same shall have to be apportioned between various types of receipts and deductions under s. 80P(2)(d) computed accordingly. 17. In final analysis, we hold that assessee is entitled to deduction under s. 80P(2)(d) in respect of interest received on advances provided to member co-operative societies. So, however, deduction permissible to assessee is in respect of net income after deduction of expenses attributable to earning of such income. We hold accordingly. 18. Before parting, we would like to clarify that after insertion of s. 14A, any decision to contrary is inapplicable to proposition involved in this appeal. 19. In result, appeal of assessee is partly allowed. *** PUNJAB STATE CO-OPERATIVE MILK PRODUCER FEDERATION LTD. v. INCOME TAX OFFICER
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